You Can't Just "Restart" the Economy Where You Left Off

The imposition of lockdowns to counter the spread of the infection
from the coronavirus is likely to severely damage the real economy. As a
result of these lockdowns, economies have ground to a total halt. The
production of goods and services has stopped while at the same time the
enhancement and improvement of productive infrastructure has been
terminated.

Does it make much sense to counter the damage caused by the virus by
stopping the economy? It is akin to trying to fix a headache by chopping
one’s head off.

The supporters of the lockdown of the general population are of the
view that this will reduce the number of infections and “flatten the
curve,” consequently, reducing the number of deaths from the virus.
These population lockdowns seem to be a natural response by
governments to reduce the number of dying individuals, and most people
are in total agreement with such government decrees.

However, most experts acknowledge that the information we have
regarding the nature of the virus is incomplete and of debatable value.
Even the World Health Organization (WHO) has criticized the conflicting
policy advice of medical authorities across different countries. Some
countries have favored testing and the isolation of carriers while
others have enforced lockdowns. Even at the level of infection and death
data—as unreliable as they are—there is conflicting opinion as to which
approaches have worked better. Thus, it seems that governments
worldwide are basing their actions on, at best, conflicting opinions on
the virus itself and the appropriate response.

Policy is thus being applied in a very unclear, even contested,
environment. Obviously, there is the real risk that the policies that
governments have introduced, notwithstanding their good intentions,
could end in disaster.

Completely stopping the economy in order to counter the viral
infection is likely to inflict much greater damage on people’s lives and
well-being. There is also the “moral hazard” of ceding greater power to
governments during emergencies, allowing them to control the economy
and individual freedoms to an even greater extent.

According to some experts, the current coronavirus (SARS-CoV-2) is
similar in many respects to the influenza virus in terms of seasonality.
If this is the case, then once summer arrives the coronavirus is likely
to disappear for several months before resurfacing in the wintertime.
Should we introduce lockdowns once again in order to counter the viral
menace? One can only hope that by then we will have discovered a vaccine
or some effective remedy against the virus.

There is, of course, always the possibility that because of its
unknowns we might not be able to come up with an effective remedy for
the virus. What then?

Government bureaucrats who operate under strict regulations do not
have the necessary flexibility to come up with effective solutions.
These bureaucrats also do not have the incentive to seek them out. This
is where a free market economy could help.

The key factor that drives businesses in a free market economy is the
opportunity to make profits. The fact that profit can be made is a
sufficient incentive for entrepreneurs to enter a particular market.
Entrepreneurs will discover the ways and means to supply the necessary
remedies to eradicate the coronavirus.

The entrepreneurs will also be source of guidance on how the economy
could function in the midst of the crisis. They will provide a framework
for individuals to coexist with the virus.

Some Asian countries such as South Korea have had relative success in
fighting the coronavirus by introducing large-scale testing of their
populations in order to identify individuals who could spread the viral
infection.

Given that the only solutions we have so far are lockdowns and social
distancing, identifying the individuals who could spread the disease
could at least allow for them to be isolated exclusively rather than the
entire population.

Moreover, if entrepreneurs were allowed to take over the fight
against the coronavirus, the quality of information necessary for
effective responses would have been much better. It is in the interest
of profit-seeking individuals to acquire as much information as
possible. This would have allowed scientists to come up with better
answers for how to fight the coronavirus.

Entrepreneurs will know how to mobilize the necessary resources to
produce remedies for the virus. In order for them to be able to get on
with the business of finding those remedies, entrepreneurs require a
free environment.

If governments were serious about increasing options and resources
for people, they would ensure that various regulations that are
preventing the smooth functioning of the market economy be completely
removed.

Most people will find it hard to accept this, because we have never
had a free market economy. For instance, people who live under a
dictatorship may find it difficult to believe that the free market can
provide telecommunication services for them, as they are accustomed to
only government supplying such services. Yet we all know that this is
utterly false.

As a result of the predictable massive drop in wealth production as a
result of the lockdowns, governments everywhere in the world are busy
providing financial support to all the businesses that have been
decimated by their policies to flatten the curve without knowing the
nature of the virus.

It's Not Possible to “Restart” the Economy Where We Left Off

There are signs that in some countries the curve is becoming flatter,
and as a result, governments are planning for a gradual restarting of
the economy. Some commentators are of the view that this restart could
take place without much harm. This, however, could be wishful thinking.
For instance, there could be a chaotic transitory period as the prices
of various goods and services are reconfigured.
Some commentators are of the opinion that the massive monetary
pumping by central banks has alleviated the damages caused by the
lockdown.

Unfortunately, monetary pumping cannot do such things. All that
monetary pumping can do is inflict new damage on the real economy by
weakening the process of real wealth generation.

Those individuals who still hold that monetary pumping is a must in
emergencies such as that which we are experiencing now must realize that
money is just the medium of exchange. It does not produce anything as
such. Monetary pumping only inflicts damage on the process of real
wealth generation, making the economy more vulnerable to various shocks
such as the coronavirus shock.